The Hindu Business Line : Issues in the spectrum debate

Telecom spectrum as a topic has received widespread attention and coverage from analysts and policymakers. GSM operators, CDMA operators, new licence awardees, equipment providers, DoT, TRAI and industry bodies such as the Cellular Operator's Association of India and the Association of Unified Service Providers of India are all stakeholders in these debates around spectrum.

"How the Government manages to keep all these stakeholders involved in future regulation and direction and how it is going to formulate a holistic policy and refrain from patchwork is going to determine the course of these spectrum issues," says Mr Nitin Gupta, Associate Director, Ernst & Young, in a Q&A with Business Line. For more insight, read on.

Excerpts from the email interaction:

Is there sufficient GSM spectrum in India?

Spectrum is a scarce resource. Equipment providers have been trying to optimise its use through constant technological development. Subscribers in areas such as Delhi and Mumbai frequently experience call drops and poor quality of service due to this scarcity.

This scarcity appears stark in the light of the aggressive subscriber growth targets. However, there is still sufficient spectrum for sustaining growth. The International Telecommunications Union (ITU) recognises a total of 110 MHz in 2G and 2.5G Global System for Mobile Communications (GSM). As against this, an average 35 MHz (a range of 25-50 MHz) is used currently by operators across circles in India.

Another 31 MHz will be required to provide spectrum to the new licence awardees. This leaves about 34 MHz of spectrum for growth in 2G and 2.5G services. The Ministry of Defence is yet to clear the air about 20 MHz of this 34 MHz. On successful handover of this spectrum and beginning of migration of subscribers to 3G services, adequate 2-2.5G spectrum would be available for growth.

Tell us about the auctioning of spectrum.

Recent 3G auctions (approximately 62 MHz in the 700 MHz band) in the US for $19.59 billion represented US' most lucrative spectrum auction, fetching twice as much as what was budgeted. This also set Indian policymakers and analysts thinking, more in favour of an auction. The US has about 260 million mobile subscribers against a tele-density of 80 per cent. India has about 261 million subscribers against a tele-density of 24 per cent.

We are expected to add another 300 million subscribers over the next 3-4 years. In stark contrast to the US auctions, the recent licence awards (with 4.4 to 6.2 MHz of start-up spectrum) in the 2G range, totalling between 26 and 30 MHz in most circles brought the exchequer a mere $2.2 billion. TRAI has clearly been in support of auctioning 3G spectrum beyond 1,800 MHz.

Why does the Government need to auction 3G spectrum?

Publicly available information indicates that the Government may expedite 3G auctions to use the funds for meeting debt relief and other social sector obligations and for achieving the Fiscal Responsibility and Budget Management (FRBM) targets.

While spectrum auctioning is definitely much more credible and transparent, global experience shows that exorbitant bidding could make services unaffordable and delay or derail technology-takeoff.

This argument deserves merit especially in the context of the Indian telecom market which is highly price-sensitive and which has one of the lowest levels of ARPU (average revenue per user) in the world. High cost services would, hence, not be sustainable.

The Government has to walk a tightrope here, trying to meet both its objectives.

There is a lot of talk on technology neutrality versus efficiency.

Both the GSM and Code Division Multiple Access (CDMA) players have repeatedly approached the Department of Telecommunications (DoT) and the Government for award of more spectrum to service their subscriber growth.

Relative allocation of spectrum between GSM and CDMA has always been an issue. In low usage intensity applications, CDMA is thought to be 4-5 times more efficient than GSM in terms of subscriber capacity. CDMA operators and the CDMA development group (CDG) have advocated equal amounts of spectrum allocations to operators, irrespective of technology. Current spectrum criteria give a maximum of 15 and 7.5 MHz to GSM and CDMA operators when they reach the maximum subscriber norms prescribed by DoT. The relative quantum of spectrum awards to both these technologies has been a tightrope for DoT, wherein the twin issues of technology neutrality and efficiency have to be balanced.

What is your take on the revised M&A guidelines, which, according to some, are against the very principles of a free market economy?

In the M&A guidelines issued in April 2008, the Government has tried to implement several of the recommendations that TRAI had proposed in October 2007. The revised guidelines are much more stringent compared to the previous guidelines issued in 2004.

Mergers have been more difficult by limiting the post-merger market share to 40 per cent (as against 67 per cent previously) and by ensuring that the number of Unified Access Service Licence (UASL) operators post-merger is four as against three earlier.

Also, any permission for mergers would now be accorded only after completion of three years from the effective date of the licence. By ensuring the above, the Government has made sure that only serious players operate in the market and limited natural resources like spectrum are used judiciously.

D. MURALI

KUMAR SHANKAR ROY

(Illustration by R. Rajesh)

http://InterviewsInsights.blogspot.com

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